Is Spartoo SAS (EPA:ALSPT) Weighed On By Its Debt Load?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Spartoo SAS (EPA:ALSPT) does carry debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Spartoo SAS

How Much Debt Does Spartoo SAS Carry?

You can click the graphic below for the historical numbers, but it shows that as of December 2023 Spartoo SAS had €28.9m of debt, an increase on €27.1m, over one year. On the flip side, it has €14.3m in cash leading to net debt of about €14.6m.

How Healthy Is Spartoo SAS' Balance Sheet?

According to the last reported balance sheet, Spartoo SAS had liabilities of €32.4m due within 12 months, and liabilities of €30.8m due beyond 12 months. On the other hand, it had cash of €14.3m and €11.1m worth of receivables due within a year. So its liabilities total €37.8m more than the combination of its cash and short-term receivables.

The deficiency here weighs heavily on the €10.2m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we'd watch its balance sheet closely, without a doubt. After all, Spartoo SAS would likely require a major re-capitalisation if it had to pay its creditors today. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Spartoo SAS's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Spartoo SAS made a loss at the EBIT level, and saw its revenue drop to €143m, which is a fall of 4.1%. That's not what we would hope to see.

Caveat Emptor

Importantly, Spartoo SAS had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost €818k at the EBIT level. If you consider the significant liabilities mentioned above, we are extremely wary of this investment. That said, it is possible that the company will turn its fortunes around. Nevertheless, we would not bet on it given that it lost €1.9m in just last twelve months, and it doesn't have much by way of liquid assets. So we think this stock is quite risky. We'd prefer to pass. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 3 warning signs for Spartoo SAS (1 is a bit concerning) you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.